A hidden cost of moving the world’s oil has exploded nearly 1,900%, Devere Group analysis shows, signaling a level of risk that some analysts say could prove far more important than oil’s latest rally as tensions around the Strait of Hormuz intensify.
Key Takeaways
War-risk premiums for tankers crossing the Strait of Hormuz have surged nearly 1,900%.A single transit for a $100 million tanker could now carry an insurance bill of about $5 million.Rising shipping costs could feed into fuel prices, inflation, and broader market volatility.Oil prices jumped on July 22 after U.S. Central Command carried out an 11th consecutive night of strikes against Iran, pushing Brent crude above $94 a barrel. But while crude gained about 4%, war-risk insurance premiums for tankers crossing the Strait of Hormuz have surged nearly 1,900%, according to an analysis by Devere Group, a global financial advisory and asset management firm.
The cost of covering a large crude carrier has climbed from around 0.25% of its hull value before the conflict to roughly 5%, according to Lloyd’s Market Association figures cited by Devere Group. For a tanker valued at $100 million, the increase lifts the insurance bill from approximately $250,000 to about $5 million for a single voyage through the waterway.
Devere Group CEO Nigel Green said:
“When that premium rises by close to 1,900%, it’s telling you the people closest to the physical risk think the danger is real and current, not priced in on hope.”
As of July 22, Brent crude had gained nearly 4%, while West Texas Intermediate rose about 3.8%. Markets remained highly volatile as traders assessed the risk of prolonged disruptions to shipping through the Strait of Hormuz.
The World’s Energy Artery Faces Rising PressureOil prices have repeatedly swung on developments linked to the waterway. Brent crude previously retreated as traders responded to a U.S.-Iran agreement tied to reopening the Strait of Hormuz, highlighting how quickly market expectations can shift.
Oil prices reflect expectations about future supply, while war-risk premiums reflect the immediate cost of operating in a conflict zone. The widening gap between crude prices and insurance costs shows how sharply underwriters are pricing the threat to vessels.
Green also pointed to the divergence between crude prices and insurance costs, emphasizing:
“Oil’s up 4%. Insurance through Hormuz is up close to 1,900%.”
Sustained increases could reduce the number of tankers willing to use the route, tightening shipping capacity even without a formal closure. Higher transportation costs could then place fresh pressure on fuel prices, inflation, government bond yields, and equity markets.
